The Dollar tumbled against major currencies except the Yen on Tuesday after the Federal Reserve unexpectedly slashed its benchmark overnight lending rate in an attempt to allay market fears of a US recession. The Fed's emergency move to cut rates by 75bp precipitated the world stock markets weakness. Short-term interest rate futures were pricing in a 25bp rate cut at the Jan. 29-30 meeting and showed a roughly 80% chance of a 50bp cut. The US central bank's move wiped out the Dollar's yield advantage over the Euro, with the federal funds rate target now at 3.5% and official euro zone interest rates at 4%.


News and Events:
The Dollar tumbled against major currencies except the Yen on Tuesday after the Federal Reserve unexpectedly slashed its benchmark overnight lending rate in an attempt to allay market fears of a US recession. The Fed's emergency move to cut rates by 75bp precipitated the world stock markets weakness. Tuesday's emergency step was the biggest Fed rate cut since 1984 and was the first inter-meeting cut since Sept. 17, 2001.
The US central bank's move wiped out the Dollar's yield advantage over the Euro, with the federal funds rate target now at 3.5% and official euro zone interest rates at 4%. The cut, which preceded next week's Federal Open Market Committee monetary policy meeting, was not enough to prevent US stocks from falling when the market reopened after Monday's public holiday.
Yesterday, EurUsd was up 1.54% at 1.4644 after briefly racing to 1.4685. The Euro has rebounded from a one-month low against the Dollar of 1.4311. UsdChf was down 1.16% at 1.0970, while the GbpUsd rose 1.03% to 1.9604. AudUsd traded up 1.7% at 0.8721 after hitting intraday 0.8512 low. NzdUsd jumped 3.39% to 0.7658 rebounding from 4-months low 0.7658. UsdJpy traded up 1.19% at 106.89, after earlier touching its 2 ½-month lowest 105.63. Short-term interest rate futures were pricing in a 25bp rate cut at the Jan. 29-30 meeting and showed a roughly 80% chance of a 50bp cut. The Fed has been cutting rates since mid-September.




Today's Key Issues (time in GMT):

09:30 GBP 4Q GDP 0.5% vs 0.7% (QoQ)
09:30 GBP 4Q GDP 2.8% vs 3.3% (YoY)
10:00 EUR November Industrial new Orders 1.4% vs 2.5% (MoM)
10:00 EUR November Industrial new Orders 9.2% vs 10.9% (YoY)
12:00 USD January 18th, MBA Mortgage Application 28.4%
13:00 NOK Cenbank rate decision 5.25% vs 5.25%
13:30 CAD December Leading Indicators 0% vs 0% (MoM)
20:00 NZD Central Bank interest rate decision 8.25% vs 8.25%
23:30 JPY November all Industry Activity index -0.4% vs 1.2% (MoM)
23:50 JPY December Trade Balance total 941.5B vs 797.4B
23:50 JPY December Trade Balance total -15.2% vs -12.2% (YoY)



The Risk Today:

EurUsd Rebounded on yesterday 1.4366 low for a clear return over 1.4500 pivot point. Current trading range is set 1.4366 – 1.4922. Market traded as high as 1.4922 last week, in sight of 1.4967 resistance November high. Further strength might open the door up to 1.5000 key level. Yesterday 1.4366 low marks support. With 1.4500 as major pivot level, market might look down for 1.4280 next support after trendline support holding 1.4311 December low.

GbpUsd remains weak having dropped yesterday down to 1.9337 before recovering up to 1.9604. Further downtrend pressure might open the door toward 1.9105 (50% retracement of 1.7049 – 2.1162 advance). Longs will only lock within a return over 1.9800 short term Trendline and 2.0000 key level ahead 2.0100 resistance. Initial supports hold 1.9483 11th January low and 1.9337 yesterday low.

UsdJpy remains weak having tested 105.63 Monday low. In recent downtrend, pressure opened the way toward 106 support. Initial support holds 105.92 last week low ahead of 104.20 trendline support. Strong resistance holds 110.10 last week double top ahead of 111.92 early January high.

UsdChf Even with yesterday sharp drop below 1.1000, with 1.0970 at close, January downtrend seems to come to an end rebounding from 1.0838 last week low. Market might look for 1.1130 (38.2% of 1.1603 – 1.0838 decline). But further weakness below 1.1019 will reopen the way down to 1.0759 trendline low. Initial resistance holds 1.1123 yesterday high. Early January double top 1.1191 marks strong resistance.


Resistance and Support:




By Jean-Claude Braha - ACM Advanced Currency Markets, Geneva, Switzerland